For emerging companies that plan to introduce a new product into the market, some of the lengthiest discussions involve determining how much to charge for a product.
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In order to reach on an optimal price, you must first know where to set your margin. This is done so as to ensure you do not overprice or undervalue your product or service than its worth.
The first question to be answered is: How much would I reasonably pay for this product if I were to buy it?
This may not be as simple to answer as it seems as each person may be willing to pay a different price for the same product depending on circumstances and perceived need.
Hence, the goal should be to determine a price at which an average person will buy a product and not the price you would like to charge for it.
If similar products are already available in the market then determine how unique or valuable your product is before setting a price for it. If you are the market leader for the product and your products are in high demand, the market will grant you more leeway to assign a higher margin.
This margin advantage narrows down as competition increases. This is when various scientific and strategic planning tactics have to be applied to set the most profitable price margin.
Some of the commonly used approaches for pricing include
- Premium Pricing - if your product is unique, you can set a high price for it, as long as there is demand for it. Lower the prices as demand falls or as more competitive offers arise in the market
- Product Line and Product Bundle Pricing - This refers to putting a fixed price for a package of products, rather than pricing them in parts. However the overall price should reflect the benefits of all the individual products. Also, in case of offering discounts for the package, make sure you do not cut down on your product's price. Instead include incentives and other benefits into the package to make it look more attractive.
- Cost-Plus Pricing - This is a common technique used wherein a certain amount is added to the production cost to obtain a reasonable profit. In most cases, a scientific approach is used to calculate the additional amount to be included in the selling price.
Though there is no hard and fast rule on the approach to use while determining the best price for a given product.
Always keep in mind that the idea is to obtain a sizeable bite of the market while maintaining customer satisfaction. Once the right price is chosen the success of your product depends on creative marketing and service quality.